Inadequate staffing in the finance department, trouble switching to a new software system and overall mismanagement are among the factors that allowed the looting of a Miami Beach bank account to the tune of $3.6 million from July to December to go undetected.
A financial consultant’s report outlines 60 recommendations for practices that would have helped the city detect the fraud, highlighting the shortcomings of a finance department that failed to notice dozens of unauthorized transactions during those six months. The money streamed out of the account through automatic transfers the same way one would set up automatic payment of routine bills.
The 83-page document, damning in that it highlights safeguards that should have been there in the first place, was made public during Wednesday’s commission meeting. Commissioners were provided the full report during the meeting, followed by a brief discussion with a representative from BDO, the international financial services company brought in to scrutinize the city’s management of money flowing in and out of its coffers.
A more thorough conversation is expected at next month’s finance committee meeting, once commissioners have had a chance to digest the findings.
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This is stupid. That is sloppiness on our part.
Commissioner Ricky Arriola
Commissioner Ricky Arriola, chairman of the finance committee and CEO of a private customer service support company, grew frustrated during Wednesday’s discussion, particularly when it was mentioned that the finance department had hired a temporary employee who had previous problems working in another financial job — an issue that was not caught in a temp agency’s background check. Until the fallout from the theft, the city had not done its own background checks on temp workers.
“This is stupid,” Arriola said. “That is sloppiness on our part.”
He also called the situation a “big mess-up” that “starts with leadership,” a nod to the instability in the department that stretches back to the autumn of 2015 — a shakeup that was also noted in BDO’s report.
The city’s top two financial officers resigned then, after it was found they had improperly manipulated leave time. Afterward, City Manager Jimmy Morales promoted the city’s chief accountant, Allison Williams, to head the finance team as chief financial officer. Her tenure ended in the wake of this scandal, when she was demoted to deputy finance director. Former budget director John Woodruff, who had left the city for another job, was brought back to be the new CFO.
On Wednesday, Woodruff told commissioners that 40 of BDO’s 60 recommendations have already been implemented. Following the public revelation of the theft in December, the administration moved quickly to put fraud control on a new SunTrust bank account, have staffers reconcile the account more frequently and create new financial analyst positions to shore up staffing.
Forty of the sixty recommendations by the city’s financial consultant have already been implemented, said John Woodruff, Miami Beach cheif financial officer.
But other problems still need to be addressed. Open positions need to be filled, and more employees need to review bank transfers and create records that they’ve reviewed the transfers. BDO laid out a series of necessary checks and balances that would ensure authorized transfers are verified and fraudulent payments are quickly noticed, and all of this activity is noted in a paper trail.
A significant source of the finance department’s issues was a rough transition to financial management software called Munis, which was launched in May 2016, just two months before the first fraudulent transfer. The switch was meant to make city processes more efficient for staffers and constituents.
The rush to make the transition, train employees and keep day-to-day operations going overburdened an understaffed department, causing work to fall behind. That work included reviewing transfers from the bank account that was targeted and noting any problems.
This basic function of good financial management should have been done each month, the report said. Instead, the Beach was about 15 days to a month behind. And no formal written policy dictated that 30 days was the standard.
“This significant time commitment and the normal learning curve required with any new software implementation adversely affected staff’s ability to reconcile and correct the resulting high volume of discrepancies in a timely manner,” the report says.
Commissioner John Elizabeth Alemán noted that, with the budget season approaching, the finance department needs funding for the right staff positions.
“We don’t want to unwittingly unfund any of the controls that have been recommended here,” she said.
Miami Beach police and the FBI are still investigating who committed the theft, but administrators said city employees are not suspected. Police Chief Dan Oates did not comment on any specifics of the investigation.
So far, $1,982,314.12 has been recovered, a little more than half the stolen money.